However, excessive conservatism can introduce a different kind of risk.
Inflation Is the Silent Threat
Inflation reduces purchasing power every year. Even modest inflation compounds over time.
If your investments barely outpace inflation, your real spending power declines. Over a 25–30 year retirement, this erosion can materially reduce lifestyle flexibility.
Safety in nominal terms is not always safety in real terms.
Retirement Can Last 30 Years or More
Many retirees underestimate longevity. A 65-year-old today may reasonably expect to live into their late 80s or 90s.
A portfolio structured purely for capital preservation may struggle to support withdrawals for that length of time.
Growth assets remain necessary to sustain long-term income.
The Importance of Portfolio Balance
This does not mean retirees should maintain aggressive portfolios identical to those in their 30s.
Instead, portfolios often require:
- A defensive allocation to cover short-term income needs
- A diversified growth allocation for long-term sustainability
- Ongoing review to adjust as circumstances evolve
The objective shifts from maximising returns to sustaining income and managing volatility.
The Behavioural Risk
Market downturns are uncomfortable, particularly when employment income has ceased.
However, moving entirely to cash after volatility can lock in losses and permanently reduce future returns.
Retirement portfolios should be structured in advance to handle volatility, rather than reacting emotionally during downturns.
Capital preservation alone rarely delivers sustainable retirement income. A thoughtful balance between stability and growth is essential.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs. You should consider seeking professional advice before making any financial decisions. Past performance is not a reliable indicator of future performance.
